FOCUS: Major Chinese copper smelter expansions to drive Q3 concentrate imports
New smelters and expansions at a suite of Chinese copper smelting companies will create fresh demand for concentrates from the third quarter of this year.
Major smelters starting up in the coming months include Chalco’s Ningde smelter and Lingbao Jincheng Metallurgical, while Tongling’s Ausmelt project is due later this year.
Having been beset by a series of delays, Chinese copper smelting expansions are likely to ramp up next year.
Trial operations from next month should mark the start of a new wave of copper smelting and refining capacity in China, which should boost copper concentrate imports but could also cap growth in import demand for cathode and blister copper.
China’s copper concentrate imports at 4.67 million tonnes in the first quarter were up 8.37%, the highest figure ever for the first quarter of the year.
“[But] with additions over the past five years taking China to ~40% of global copper smelting output, and over 1 million tonnes of new capacity to be added of the rest of this year, this trend is posing new challenges in the copper market,” BMO Global Commodities Research head Colin Hamilton said in a note in April.
“With utilization rates heading below 85%, this tends to mean only one thing - depressed profitability,” he added.
Hamilton expects closures of outdated operations and a “one-in, one-out rule” governing new capacity in future, he also said.
“We have utilization rates falling below 80% in our numbers so, although this capacity is being added, it’s questionable whether it ends up being such a huge net addition if you see other capacity struggling to secure material,” David Wilson, a commodities strategist for trading house Freepoint Commodities, told Metal Bulletin by phone.
“Breakeven for the majority of Chinese smelting capacity would be spot TCs at $70 per tonne and sulfuric acid prices of 200 yuan ($31.40) per tonne,” he added. “Some of the less efficient capacity is going to get squeezed out one way or another by falling TCs or acid prices.”
Private copper smelters in southern China are the most at risk due to depressed regional sulfuric acid markets.
Annual concentrate treatment and refining charges (TC/RCs), fees paid to smelters for the costs of processing concentrate into metal, have declined consistently since 2015.
Annual benchmark copper TC/RCs settled at $82.25 per tonne/8.225 cents per lb for 2018 contracts, the lowest in five years. Meanwhile, the spot market last month slipped to its lowest since 2013 at $70/7 cents when traders bid down cargoes in expectation of a third-quarter deficit, based on demand from smelter expansions as well as potential mine supply disruptions.
RCs for 98-99% purity blister copper have risen sharply this year to $225-245 per tonne in the spot market, largely based on Chinese smelting capacity additions and a concurrent lack of refinery growth, market sources said.
“It’s very likely that we will see a lower copper concentrate TC/RCs in the second half year as smelters need to get well prepared for their expansion projects. If Glencore’s Pasar copper smelter and India-based Sterlite smelter recover operations in the second half year, no doubt it will depress TC/RC further by that time,” Xianfei Ji, a copper researcher at Guotai Junan Futures, said.
But continued delays to certain projects could defer at least some of this year’s demand boost until 2019.
“As the big project in Chifeng has been delayed to next year, and new projects to start up this year won’t reach full utilization, demand for copper concentrates is not as strong as market expected, so we don’t anticipate tight supply in raw materials in the second half of the year,” Citic Futures research director Yongqi Xu said.
June start date at Ningde
Chalco’s new smelter in Ningde, Fujian province, will begin trial operations at the end of June as planned, sources at the company said. Although construction of the project is complete, auxiliary furnaces are not yet ready, a market source said.
Full refined copper capacity, to be realized in two phases, will be 400,000 tonnes per year. Trail operation of the first phase will bring refined copper capacity of 200,000 tpy come online this year.
But the expected capacity utilization rate during trial operations will be 40-50% of this total, in line with standard industry practice, sources said.
Given anti-pollution controls in place at the plant, the company does not expect to fall foul of environment protection policy, sources added.
Yunnan Copper’s concentrates buying team will handle concentrates purchasing for the Ningde smelter, sources with knowledge of the matter said.
Trial ops to start at Lingbao, Tongling Jinchang smelter to start in H2
Meanwhile, Henan-based Lingbao City Jincheng Metallurgical Co Ltd will start trial production of a new 100,000-tpy refined copper smelter in the third quarter as planned, a company source said.
The company expects to consume 180,000 tonnes of copper concentrates during a July-September trail period, with 60% likely to consist of imported material.
After the trial, the smelter project will have a three-month adjustment period and will officially enter operation from the start of next year, the company source added.
“The major business of the company is gold smelting. The copper project aims to improve the purity of its smelted gold,” a market source said.
And Tongling Nonferrous Metals Group will start its new Jinchang smelter at an as-yet undecided date in the second half - a slight delay from its earlier plan for a second-quarter start-up.
The smelter will have full blister capacity of 200,000 tpy, of which 50% will supply the company’s affiliated refinery, a company source said, adding the project is still in the equipment installation phase.
Yunnan Copper’s Chifeng Project delayed
Not all projects are ramping up on-schedule, though - the expansion of Yunnan Copper’s Chifeng project in Inner Mongolia to 400,000 tpy from 130,000 tpy at present has been delayed until next year, sources with direct knowledge of the matter said.
“It was planned for this October but now the commencement date has been postponed to April 2019, a delay of six months or so,” one source said.
A source at Yunnan Copper confirmed that the smelter’s arrival will be delayed but declined to provide a date when it expects either trial or commercial production to start.
In the first phase of the project, Yunnan Copper will build and ramp up production at a 200,000-tpy smelter to complement existing operations. In the second phase, capacity at the new smelter will be expanded by 200,000 tpy, at which point the original smelter will be closed.
“We started stocking concentrates for projects from the second half of last year,” the source at Yunnan Copper said.
Other expansion projects to track
Henan-based Zhongyuan Gold Smelter started a new smelting project in January to raise its refined copper capacity to 350,000 tpy from 200,000 tpy, two market sources said.
Meanwhile, participants are closely watching other smelter expansions. These include projects at Yuguang Gold & Lead to raise refined capacity by 100,000 tpy, with trial operations starting as planned; and Qinghai Western Mining, to raise refined capacity by 100,000 tpy, where trial operations also started in the second quarter
Further forward, Shandong Humon Smelting will start trail operations in the third quarter on a project to increase refined capacity by 170,000 tpy; and Guangxi Southern Copper will raise refined capacity by 300,000 tpy, with trial operation set to start either in the fourth quarter or in 2019 - details have yet to be confirmed.
Citic Futures has lowered its anticipated smelting growth forecast in China to 700,000 tonnes for 2018 from earlier expectations of more than 1 million tonnes, Xu said.
“The growth rate in raw materials [supply] is slower than smelter capacity growth. Currently, it’s good enough for Chinese smelters to see TCs remaining above $70 per tonne this year compared with the current level of $75-78,” Citic’s Xu said. “[But] we expect a worse situation for smelters next year.”
Additional reporting by Julian Luk in Hong Kong